Richard T. O’Brien has wasted no time in creating a plan to rebuild the sagging fortunes of Denver-based Newmont Mining Corp.
Only five days into his new job, O’Brien last month surprised analysts by launching a series of steps intended to stem financial losses and restore investor confidence at the world’s second-largest gold-mining company.
The changes – a proposed sale of assets, cancellation of gold hedges and new executive appointments – came in response to sluggish production growth, rising costs and a devastating 36 percent fall in its stock over the past year and a half, despite gold prices approaching the highest level in 27 years.
“We lack credibility,” the 53-year-old O’Brien said in an interview Friday. “There has been underperformance. The company has failed to deliver on what we advertised.”
O’Brien said he expects Newmont to spend one year fine-tuning its turnaround plan and another year to begin seeing results.
“It’s going to take some time,” he said. “It will not happen tomorrow.”
O’Brien left a career in the utilities sector to join Newmont in 2005 as chief financial officer and senior vice president. In April, he was named president, then appointed chief executive July 1 to succeed the retiring Wayne Murdy.
Less than a week later, he announced a plan to spend $578 million to cancel Newmont’s forward gold contracts, or hedged sales, and to sell Newmont Capital, a merchant banking subsidiary that manages non-gold investments.
Expenses related to the planned sale forced Newmont to take a $1.66 billion writedown. Combined with the after-tax cost of $460 million to eliminate hedges, Newmont reported a $2.06 billion loss in the second quarter, compared with a gain of $161 million in the same period last year.
After the earnings report, New York-based analyst firm Matrix USA downgraded its rating for Newmont from “sell” to “strong sell.”
“We like the (gold-mining) sector, but we find Newmont with a somewhat weak performance,” said Matrix senior vice president Thomas Gillespie.
Another New York mining analyst, Victor Flores of HSBC, offers a mixed review of Newmont along with a “neutral” rating.
“Newmont’s new management has taken the first steps in a long road to regain the company’s lost credibility,” Flores said in a recent report.
He described the hedge buyback as “cosmetic,” but said the plan to sell non-gold assets is “a slightly bolder and, we would opine, necessary move for Newmont.”
Flores said he sees Newmont’s main problem as owning a series of aging gold mines where production is starting to drop, yet an inability to acquire enough new properties to reverse the decline.
“Newmont needs to do something to replace its aging production base,” he said.
For example, gold production at the Yanacocha mine in Peru, Newmont’s largest asset, has dropped from 3.3 million ounces in 2005 to a projected 1.6 million ounces this year.
Increasing production is high on O’Brien’s “to do” list, with a target of growing through development of existing holdings and acquisitions of other firms or properties.
While declining to offer specifics on which companies Newmont may target, O’Brien said outside acquisitions aren’t likely to be blockbusters.
“We’re not going to be swinging for the fences, but we are going to look for opportunities,” he said.
O’Brien scoffed at rumors of a merger or takeover by Toronto-based Barrick Gold Corp., which overtook Newmont last year as the largest gold miner after acquiring Placer Dome for $10 billion.
Returning to No. 1 can wait, O’Brien said. “My goal is to be the best,” he said. “If at some time we’re the best and can also be the biggest, that’ll be fine.”
Staff writer Steve Raabe can be reached at 303-954-1948 or sraabe@denverpost.com.
Denver-based Newmont Mining Corp. said Friday that it is contributing workers, supplies and money to earthquake relief efforts in Peru. Newmont operates the huge Yanacocha gold mine in Peru. The mine was not affected by the magnitude-8 earthquake that killed at least 540 people and injured at least 1,500 southeast of Lima. Newmont said its contributions include:
Emergency response crews from the Yanacocha mine helping in search-and-rescue efforts.
Newmont employees in Peru and Colorado collecting clothes, blankets, towels, sleeping bags, shoes and flashlights for quake victims.
Working with Project CURE to have a large cargo container with medical supplies shipped to Peru. Newmont employees will participate in a volunteer day to pack the container.
Encouraging Newmont workers worldwide to donate to earthquake relief agencies. The company will contribute $2 for every $1 given by employees.
STEVE RAABE
